Austrian Economics, Gold, and the Fed’s Confidence Game

Hello and welcome to another episode of the Minor Issues Podcast. I'm Mark Thornton right here at the Mises Institute. In this episode, I'm going to be playing an interview conducted by one of the students at Rothbart Graduate Seminar. Um, and that student is from a university from the hometown of Ugan Bomb, one of the most important Austrian economists of all time. And we really get into some interesting and fundamental questions about what is Austrian economics, how do you distinguish it and what good is it for, you know, various groups of out there of students and just layman and all the rest. Um, so very challenging little interview. Uh, it's short and I'm going to be providing both the transcript from that interview as well as an audio recording of the interview. And that's going to be followed on side B with recent interviews that I did with Danny at Capitol Cosm and Daryl Thomas at VRIC Media, uh, which are more extensive interviews that I've done recently about, you know, the state of the economy and Austrian economics in particular. So, uh, enjoy the recordings. Um, we'll see you on the next episode. I'm Mark Thornton at the Misesus Institute. >> For for students at my university um who may be hearing for the MSUS Institute for the first time, how would you explain the institute and why this small institute in Auburn matters? >> Well, it's a very good question. We are a small nonprofit organization dedicated to providing educational services for everyone in the world uh for Austrian economics which is the oldest school in economics. It's probably the smallest school in economics but it's also the fastest growing school in economics. >> Indeed. What makes this institute different from the other uh university economic defi economics departments? >> Well, there's a lot of differences with a a typical economics department at a university. We're not really a university. We only have four faculty members in house. We have dozens of affiliate faculty all around the world. Uh we have two academic journals. We have several educational programs inhouse for you know the from the general public, high school, college, graduate students, professionals uh in academia and we do a whole lot of public outreach uh through our web page and through podcasts. Uh we have this huge library here at the institute. We have a huge library of audio and visual um lectures um and articles galore of all kinds. >> Uh I am right now here for the Rothbart graduate seminar which is a brilliant opportunity for me really special one. From your perspective what makes RGS important for the young students of Austrian economics or economics in general? Well, our educational programs is a capital building program for us. Now, of course, it's it each one of the programs is fit for a different audience, but for us, we have the web page to introduce people of any sort really. And then we have Misesus University to uh for undergraduate students. Um and then we have the Rothbard graduate seminar where graduate students come come in and explore uh their topics under the lens of Austrian economics. And then really after that we have the summer fellows program where you come in for the entire uh summer period. uh and we have graduate students from around the world that do this mostly in economics but also in business and finance, history and philosophy, political science, international relations. we've had all different types of students because Austrian economics is so useful in really any field >> and you know so that's uh makes for a very interesting summer as you're getting a good taste. >> What do you hope for students to take home after spending a week here? Well, I think the biggest thing is that Austrian economics as an old school, you know, coming forth from the old classical school, uh, we rely on deduction to develop economic theory applied to human action. And it the human action is universal. So it's got to be things that everybody does in pretty much similar ways uh responding to prices uh for example. So that's the core of the solution uh that Austrian economics provides and I think seeing that demonstrated um is a real eyeopener and a career builder. But many students first learn economics through mainstream books. And so in our uh university as well, it's more or less similar case. What is the biggest difference between that mainstream approach and the Austrian approach? >> Well, there's a lot of similarities actually. Um most of the opening chapters in a mainstream economics textbook are re they're really derived from the contributions of Austrian economics starting with Carl Manger in Austria. You know the the whole notion of supply and demand and price determination the whole notion of comparative advantage. the whole notion of opportunity cost that economics is a science of ends and means and um and scarcity you know and all that's built into the uh the beginning chapters that are used in both micro and macro. Now of course after that there's a lot of differences. A mainstream textbook is going to look more like an encyclopedia uh chopped up into different topics. Whereas everything in Austrian economics is really uh not just understandable but we try to build it sequentially so that you're building upon one thing after another consistently throughout the entire book. Uh so the differences is the difference rather in the method or uh can we see that difference also in the policy recommendations or conclusions? >> Well, it definitely starts with the methodology. The Austrian methodology looks at human action and tries to deduce logically what rationally people will do and respond. You know that they'll be producing in order to consume. They'll be saving in order to become wealthier over time. uh they'll trade to take advantages of the the mut mutual benefits that are out there and available to be discovered and to be exploited. And that's true whether it's employer looking for an employee employee looking for an employer uh or um the household looking for products to buy. um you know it it's all intertwined and it's all based on that solid method that the Austrians use and then we use that to deduce theory. Now of course the theory is going to take us into uh very often much different directions in terms of policy recommendation. Um so fourth question which is uh even more meaningful for me and my university uh I would like to ask about Eugene Bombab was born in Berno where Maser University is in today where which is where I am going and he is uh and I saw it in the institute as well one of the portraits of his and he's regarded as one of the most important early Austrian economists. So for our students, could you please tell me that why is Benarak important for Austrian economics and economics in general? >> Well, he's really the foundation to many of the the structures of the contributions of Austrian economics. He was the first person really to discover the genius of Carl Manger uh and his book on the principles of economics who and he became a professor at the University of Vienna and Ugan Bomb really was one of the first p people to really realize the importance of that contribution and Bombav who was brilliant in every respect um made substantial contributions building on Manganger in terms of giving us a very modern uh very wellreasoned illustration about how prices are formed which is the basis of the profession really. He gives us the standard interpretation of the foundation of interest rates uh in the economy. he he's uh gives us one of the very first explanations about capital and capital development uh and how it relates to production in the economy. So Bomba is giving us these brilliant illustrations of how we can rely not just on our imagination but on concrete examples and models about how the economy works. So he's one of the most important uh Austrian economists of all time and he was also of course a multi-time uh minister of finance in in Austria and he has his picture not just in the Misus Institute but on the old Austrian currency. So I mean I it's hard to imagine somebody being more important than that man. Indeed. I I remember seeing in one of the museums at the at Vienna that there's the hundred shilling and that's his picture is there and they they still have this legacy of him. >> Well, and it wasn't just that he was an able bureaucrat. He was a politician um and a central banker who was really responsible for keeping Austria on a sound economic footing. you know, because there were a lot of tendencies in Europe at the time to move to uh less efficient, less rational economic systems and Bombabert was very forceful uh and convinced people from across the political spectrum of the proper way uh for a stable advancing economy. So, it wasn't just that he was good at, you know, pushing paper around. Um I would like to ask a bit more controversial topic which I I think it is rather funny uh to to ask you especially because of your empirical work which is one of your most famous work but uh what are the biggest misconceptions about Austrian economics like for example some people say that it's fully anti-impirical anti-science or they sometimes call Austrian economists political ideologues. How would you how would you respond? >> Well, I I kind of giggle myself when I hear people explain to other people what they think Austrian economics is all about. And it we do get charged with being normative and outofdate and phobic of mathematics and statistics. The truth is is that uh Misesus uh and Rothbart for example, two of the modern Austrian economists that we follow, uh they were experts at all sorts of fields including statistics and mathematical uses in economics and history. They were experts philosophy. They were experts. Uh these people knew really the whole scope of human sciences. Uh but we often get labeled as normative. And the truth is is that that's very uh much backwards. Austrian economists have a format. uh when we looking at policy relevant issues we first of all we try to figure out how things worked in the first place if you don't know how things worked you don't know what caused the problem or how to fix it. So we start there and then we look at the causes of what caused problems in the original wellfunctioning aspects of the economy and then from there it's pretty easy to determine what do we have to do to fix things and so when Woodbick von Mises inaugurated and was involved in the socialist calculation debate from roughly 1920 20s through the 1950s. Um he started the debate by showing that socialism is economically irrational as a system. It didn't have the means to rationally calculate the value of goods and services and capital goods hearkening back to Bomba um and all the rest. So he was building upon Bomba and Manganger and uh he showed this demonstration of why socialism was economically irrational uh in the sense that it was not a proper means to achieve the the people's desired ends. um which then of course leads to um a solution of restoring markets and restoring private property. Now ultimately of course Misesus is vindicated by the breakdown of sort of neo socialism in China and Russia where they had access to world prices and they had access to world markets and things of that nature. And then we see the empirical results where China has gone from an economic back basket case to a world economic superpower. And then we can also see it in the relative performance of European economies. Some of them have continued to go towards more socialism and central planning. Others have moved away from central planning towards more market orientation. And the relative performance statistically speaks for itself. >> Yes. Yes. And one more addition is that uh Mises going back to the empirical idea, Mises is one of the first people that established a research center on business cycles in Vienna and and that center is still alive today which is uh not really known that >> the empirical study of business cycles. >> Yes, exactly. The empirical study of business cycles. Okay, so let's uh get closer to the end and I would like to ask about your most famous work, The Skyscraper Curse, and we can kind of bundle that up to Austrian business cycle theory as well. Uh your book, The Skyscraper Curse, is one of the works that helped me uh talk about the Austrian economics a lot. I I showed it to my friends. It's a really easy read and it explains it quite well and it's a it's an really interesting research and a colleague of ours in in RGS was talking about he was able to debate with Brian Kaplan with using this book as as like a good anchor to debate. Could you please briefly explain what is the main idea of that skyscraper curse? Well, you know, I I'm very grateful for that because the skyscraper curse and which is the building of a world record setting skyscraper is associated with uh a world economic crisis or a big economic crisis. Um, and there's good empirical evidence on this going back 150 years now. Um, and that seems strange obviously, but uh, and it's not the building of the building that actually causes it. It's that the building of the record setting record setting skyscraper is an illustration of the theory in the sense that of Austrian business cycle theory in the sense that it's always periods of artificially low interest rates that builds up artificial momentum and investments in the economy like world record setting skyscrapers where new technologies, advanced technologies are brought into the economy rapidly all at once. And uh whether you're building skyscrapers or factories or whatever, uh computer technologies, artificial intelligence, um those kind of things. Uh it's just that we have this skyscraper evidence going back 150 years. And so I think the Austrian business cycle theory explains booms and busts and the skyscraper world records fit nicely into that story in all of the various components. uh where you've got the money supply, you've got interest rates, you've got expansions, you've got the um quick introduction of a lot of technologies, and then shortly thereafter, a lot of those industries with advanced technologies go bust, you know, whether it's computer chips or various things in the past. Um, you know, in the Great Depression, we had the America, uh, the Empire State Building and other records set in New York City right around the time of the stock market crash and the Great Depression. And we all we also had all sorts of new uh technological goods like radios and aircraft and refrigerators and all sorts of things. So, it's a great illustration. um how could you please tell me about like the Austrian business cycle theory for someone who simply doesn't know about it in in a like a really easy manner? >> Well, like Bombavaric um taught us about interest rates. The market interest rate is what regulates uh business investment and expansion. And what regulates the interest rate is the amount of savings we do. So if we save it works it it way into banks and finance and then into capital uh expenditures. So there's real resources being foregone in the form of savings and future investments production of goods and services that is there to match. So it's a stable system. But when the central bank comes in and artificially lowers the interest rate by injecting more money and more credit into the system, well that means there's actually less savings but more investment. So there's uh a breaking of the bombavarican uh linkage there and you get too much investment without resources being allocated to produce those um capital investments and so there's there's a boom in the economy. Uh capital spending engenders all the economic activity that everybody hopes. Uh but ultimately uh because there's a disconnect in resources set aside versus resources used ultimately the economy is going to uh suffer a severe contraction. Uh some of Austrians have labeled this a um a cluster of entrepreneurial errors. Why do all of a sudden all sorts of in uh entrepreneurs in a particular industry fail all at the same time? Well, the Austrian business cycle theory explains that and it also explains, of course, regular price level inflation and it also explains the K-shaped economy because during this boom phase, the wealthy get much wealth wealthier as asset prices are built up, as people get levered up, leveraged up, the wealthy get really rich and then of course they also lose a lot of money in the bus, but you know the working class only gets higher prices so that most people are actually harmed in the process and they have less savings in the end. >> Uh so would you somehow connect to the modern uh discourse about this uh inequality as as written by Gabriel Zukman and Thomas Pikaty and all all the other sort? Would you would you somehow connect this inequality discourse to the to the Austrian business cycle theory? >> Oh, there's no question. In the United States, the central bank is systematically been keeping the interest rate on the low end constantly for decades. And then there's certain periods like right now um in the last several years where the central bank has been has kept interest rates very low and the inflation adjusted interest rate in the United States right now is less than 1%. So it's no surprise to Austrians that we're getting this vast increase in inequality. It's part of the whole system of our analysis and it's been a very popular topic for me. I do a lot of podcast interviews and uh everybody knows that there's a K-shaped economy, but nobody's got a theoretical understandable solution as to why it's happening. There's a lot of people that are saying, well, you know, give more welfare or give a living wage or give this or give that and blah blah blah. that doesn't really solve the problem because they don't understand the problem. They don't know what the cure is. And so Austrians have a good theoretically based analysis of why there is this K-shaped economy and why we had the same thing in the 1920s too. This was the same big problem in the 1920s. It was the same problem in the 1960s and now it's the same problem all again. more extreme than it typically is under our central bank but it can happen under any central bank. >> First would be uh advice for uh what advice you would give to students in Europe who are interested in Austrian economics and the ideas of Austrian economics who is probably intellectually alone at their universities. Do you believe is there somehow a way to uh include elements of Austrian economics to their uh their research and their studies? >> Yeah. Because any level of understanding Austrian economics is going to help you whether you're into primarily economics or you're into finance or marketing or accounting or if you're into history or philosophy or logic. um you know it's it's going to be very helpful and encouraging and Austrian economics is really easy to understand. It's not like mainstream economics where you have to have courses in math and um courses in statistics and and all the rest and then then there's a lot of boring stuff that has to be put in the mainstream text as well. But everything in Austrian economics is understandable. So we have people writing in that they're learning a bunch of Austrian economics off our web page, you know, so there's like people who live out there in the Amazon River Basin and they're they're connected to us or we have people writing in who live in outer Mongol not outer Mongolia but in Mongolia um and uh and other other places all around the world um you know who or who are stationed you know, on far away military bases or they work in warehouses around the clock and you know, just all sorts of situations. The web page is written for everybody. We have daily articles that you can subscribe to and podcasts that you can subscribe to which go from, you know, current events on up to economic theory. My minor issues podcast is somewhere in between, but it's short. It's only 10 minutes. Uh and then you know once you see the value in Austrian economics and the web page you might want to go to Mises University and if you see it as a career well then you might want to go to RGS and the summer fellows program and you know European universities have graduate degrees that where Austrian economics is part of it. So, uh, it's much better. Even though it's so limited today, it's much better than when I >> That's good to hear. >> There was no internet. That's how old I am. >> Okay. So, uh, Lesie, for for what book or books you would recommend to someone who is just getting into economics and and a to economics and b as to to Austrian economics? Well, I think that depends on their interest. I would start with daily articles and see what kind of get a taste of what it's all about and then look around at the books. Um, you know, you can search uh Google for the title and the author plus PDF to see if it's available from us for free. And sometimes we have audio form and foreign languages and stuff. Um but then look for your your area of interest. Um we have there's a lot of stuff on management. There's a lot of stuff on economics obviously in my book on business cycles. We have you know textbook approaches, economic treatises. Um but the value of being able to download the books, you know, you get to see them like you would be in a bookstore. you get to look at it and see if it is this right for me. >> So there are a lot of areas uh where we all this stuff gets applied as well as the theory and um and a lot of history as well. So, >> but uh as like if you would say like one mainstream book and one Austrian economics book, if you would have to recommend to some high school or let's say undergraduate student, what what would you recommend? >> I know that's an hard question, but >> it's a hard question. Yes. Um it really is. Um, you know, I would recommend my book on >> skyscrapers to anybody who's interested in macro and a microbased macro approach um, and business cycles. And the second half of the book is all about case studies in America about who predicted past business cycles and who didn't. Um, and I think that's interesting reading. My um I have a book on the economics of prohibition. Uh, it's one of the very few books on that. And I have a book on um Richard Canion's essay on economic theory which was written uh 250 years ago. was the first book in economic theory and he was very much in line with what Austrians have done. Um, and I've translated that into English and it's available in audio and >> that's cool. >> Uh, I've written a book on the economics of the American Civil War which is a very small book. >> Uh, I don't draw out the Austrian contributions but it's all in there in the background areas. >> Indeed. Who would you like who who who do you like to read from let's say a mainstream economist? Is there anyone? I'm asking out of curiosity. Well, you know, I I've read a lot of the popular books in um in mainstream economics. I started with Milton Freriedman um and read his books. Um, I've read freconomics books, um, and and that sort of thing. I've looked at, >> you know, the recent books on economic inequality. >> Um, and as those developed, um, from Thomas Pikid, >> yeah. Yeah. He reveals himself moving from a statistician with many flaws to really an ideologue. I mean, but in his case, he's proud of it. >> Yeah. I mean, I I find his work fascinating because he sold so many copies and he's had such influence and yet I can't find many people who have actually read his books because I'd want to go out there and talk with colleagues in the mainstream about it and nobody's read it. And I and I do like reading uh a lot of mainstream >> um economic historians >> because I find I find a lot of good material but I also find where the errors in it you know that you can attribute to not understanding Austrian economics. So I've >> developed a lot of areas of interest uh for example in the economics of slavery. apply Austrian economics to explain the vast battle between >> I remember that's >> economic historians and American historians and I I developed a an approach where it shows you know not how you can bring those two approaches together but what got them separated in the first place. >> Uh I had some question in my mind but I anyway we we are going over the time as well. I don't want to take too much much time of yours either. What would you be your the final message to to Messer University students? Would you suggest them to check out MSU or to to come to RGS? >> I would definitely take a look. You're going to find something interesting and understandable. And I think that if you're interested in the economic area or just your major, economics is important. The great thing is that you can understand it and you can apply it to other areas. And it certainly works if you're an economics major or going to graduate school uh in that area and then you would definitely want to apply to Mises University and we'd love to have you. >> Thank you so much, Dr. Thompton. I really appreciate your time. Uh I hope this interview will help our uh my friends and students at Maser University to discover Austrian economics as well as the Mises Institute. >> You're welcome. I enjoyed it. >> Hello everyone. Welcome to VRIC Media, your most trusted voice in metals and mining. I'm your host Daryl Thomas and today we have the pleasure of interviewing Dr. Mark Thornton of the Mises Institute. How you doing today, Mark? >> Darl, I'm doing good. It's good to be back on your show. >> Yes, of course. I I love uh having our discussions because uh they're about real issues and real issues that impact the main street economy as well as uh you know people all over our country. And so uh always appreciate our discussions. Um so to start us off I want to start with the Fed. Okay. So, there was this narrative painted that the Fed was going to be Kevin Wars was going to be so um hawkish and it seems like the market may be sniffing out that the Fed is is is bluffing and I know that Wars wants to prevent from prevent like messages going out to the markets and influencing the markets because uh over the past I don't know how long but uh the Fed yeah different Fed chairs speaking and influencing markets in one way or the other. I want to get your get your thoughts and what what are you thinking about when you're seeing this dynamic with the new Fed chair? >> I think the appointment of Kevin Walsh was a hit job on the gold market. The day he was appointed, gold and silver fell tremendously because of this hawkish reputation that he has. Uh he was certainly the most hawkish of the four candidates that President Donald Trump was considering to appoint as chairman of the Fed, but I've been saying all along that I didn't think he was going to raise interest rates. he didn't want to raise interest rates and that he was likely facing uh the prospects of cutting rates uh rather than raising them and that uh inflationadjusted interest rates are very very low right now. But in the event of some market crash uh or terrible external event or something internal to the banking industry u a collapse of a sector like housing or private credit and the and the interest rate cuts from the Fed I believe are going to come fast and furious. Um, and so they've been playing this game of perception, which they try to do with every new incoming chairman of the Fed. Um, and I just saw right through that. I didn't think that he was going to be hawkish. I didn't think he was going to address the problem of inflation. It's still well over 3%. It's expected CPI is expected to be over 3% u on, you know, this week. and uh and moving forward um you know the in the if there is a slight downtick in CPI inflation it's going to be because of a uh the shortterm uh cut back in the price of gasoline but longer term you know there's more money therefore there's going to be higher prices and I don't see uh Kevin Walsh really being able to do much about that So, do you think this is any way similar to when Jerome Powell was nominated? I know he came in pretty hawkish. Um, I think it was about what 2018 or the Fed was uh talking about raising rates or I think they may have raised rates a couple of times or something of that nature. the market freaked out and and then when we had the the pandemic um hit um you know they pretty much pivoted and did an about face and started printing trillions of dollars and so um Jerome Powell was always seen as a hawk but under that immense amount of pressure he caved into the pressure and so curious if you think this could be a similar type dynamic. Yeah, that's a great question, Darl. And I think that's really how the operation of money printing has gone on for a long time present a hawkish um um image to the general public and to the investors in the economy and to the financial uh industry and get them thinking with expectations that they're going to keep a cap um on inflation and money supply and interest rates and so on and so forth. But, you know, the Fed's real mandate is not unemployment and the inflation rate. The Fed's real mandate is making sure the government finances its debt on the one hand, and it's also protecting banks, Wall Streets, and stock markets on the other. So they'll talk a lot about, you know, the unemployment rate and they'll talk a lot about CPI, but their main um overriding concern is going to be with the government's ability to finance its the national debt. And of course, right now, that's a very important question. with $40 trillion in debt. Uh the the interest rate on government bonds rising and the interest expense uh really exploding uh over the last couple of years and refinancing all that debt at even higher rates is really going to undermine the financial ability of the American economy. Uh and so they're very interested in that. And then of course they all come from the banks and Wall Street. uh in academia that's beholden to Wall Street and the Fed. So they're very much concerned about that. Uh and they talk about, you know, the systemic importance of banks, uh the systemic importance of Wall Street and financing and that sort of thing. So they're going to come to the rescue uh to whatever crisis um that comes about. And of course we, you and I have been anticipating uh some kind of breakage in the economy, some kind of black swan, some kind of day new um in in bond markets especially uh to take place. So we're just waiting uh and seeing how this is all going to uh turn out. Mhm. So earlier you said uh you think that the appointment of uh Kevin Wars was a hit job on the gold market. Uh what is the threat of gold uh to the powers that be to the government to the Fed? Uh when gold is rising how does that threaten them? >> Well symbolically it's terrible uh for the government. It's terrible uh for the US government and the Treasury. the value of the dollar really everything. It's it's uh the symbol of fear in the population, the symbol of inflation in the population, uh the civil symbol of tough times ahead uh in the economy. And so symbolically and in a very real sense, uh it spells trouble uh for the Fed and and the Treasury and the government itself. and they know uh very well that people around the world that there are more and more individuals holding gold and silver as a precaution against inflation, war and and other things that the government is doing. Uh that's especially true in Asia, China, India, uh Turkey, the Middle East, uh many other places. And then of course even central banks, other central banks other than the United States um have been running away from the dollar and have been putting more and more of their asset money in gold rather than in US treasuries. That says that's a big story to the world economy that some central banks no longer trust other central banks like the Federal Reserve uh and the European Central Bank and the Bank of Japan which is under an enormous microscope right now. you know, it's in in serious serious trouble. Uh, experiencing price inflation for the first time in many years in Japan, wage inflation for the first time in many years. The value of the N is falling and the um the interest rate on long-term Japanese bonds uh has increasing. It's broken out to uh historic levels. And so, you know, all of these things point in the same direction that government is doing the wrong thing uh across the board. It's systemic within uh government um and and that's particularly true here in the United States. the leading economy is uh behaving in uh you know in the way of a drunken sailor spending money and um not really addressing uh any kind of fiscal constraint. >> Mhm. Uh do you think that the um so when Warsaw was appointed there was a big narrative about the debasement trade get out of the dollar they're going to inflate the dollar and you know I'm thinking that you know the government wants to either dupe people or trick people to have confidence in in the establishment or confidence in the in the system confidence in the dollar and such and so do you think that could have and a reason where they appointed a hawkish um somewhat what's what's uh assumed to be hawkish uh chair to say yeah we we can't have this narrative out there. >> Oh, I think that's exactly what it is. and confidence. You know, it's a confidence game and there are members of the board of governors of the Federal Reserve out there giving speeches um on a monthly basis all around the country to important business leaders in banking, finance, insurance, and so on. um and and telling people that the economy is good, that the Federal Reserve is powerful, the Federal Reserve is the inflating uh inflation fighting agency of the government when in fact it's the inflator uh of the government. And it said, you know, and they go out there and tell people everything's going to be okay and if anything does come up, the Federal Reserve will act and save the day. And you know, you can read their speeches. They're giving those speeches every week, every month, um to important business groups, uh selling this confidence game, which means, you know, a confidence game is where you're getting taken for a ride when somebody's telling you a story about one thing that isn't really completely true or maybe completely false, but that's how the Fed operates. uh they want to manage expectations. A lot of people in the Fed even talk about managing expectations. Powell was a was the master of managing expectations. He did come in as a hawk. He obviously inflated at any turn uh in a very massive way. Uh and that's the typical story that you know they appoint people coming in and they're uh you know inflation hawks and they're going to be tough and ultimately they do what's necessary to uh work for the government and work for the banks and Wall Street uh that ultimately they ultimately are the ones that are protected uh and the average consumer uh is not protected from price price infl inflation and does not benefit from protecting banks or protecting Wall Street or you know or certainly not for making it easier for the government to borrow unlimited sources of money. So that's really uh almost a fairy tale uh that the media has foisted um on the American public. And it's amazing to me u that the effectiveness of that fairy tale remains so strong today that everybody um on Wall Street is living and breathing and crying and dying um on the slightest change in perception about the expectations of what the Fed may or may not do when we have a very uniform record uh uh of what they're going to do, what they're going to try to do, which is keep borrowing cost really low, uh which is going to help not only the government, but it's going to help Wall Street and asset holders a great deal. Uh but it's ultimately going to who's going to pay the bill? It's going to be mom and pop. It's going to be the working class out there uh who are paying higher prices for the goods and services that they buy. >> Yeah. Yeah, for sure. I definitely want to get to that with uh with the average American. Um so I'm I'm always looking for sentiment and such, especially when I'm on social media and um I wanted to get your thoughts on this. So um Ran Paul had tweeted out that he went to Fort Knox and he saw the gold. Um many people were upset. Many people I I've watched in the space and I respect were like challenging that claim and saying where's the proof? Is the gold there and such and so do you think the gold is in Fort Knox? I just I just had to bring that up because it it was it was on social media and and people were and Rand Paul somebody who you know I really love Ron Paul's work you know I have his book in the Fed and um you know think and then Rand Paul is like one of the few politicians that I actually watch and and like to listen to that that has uh you know some common sense you know on in in that particular space and so curious your thoughts on that. Well, yeah, I agree with you, Darl. Uh I but I do believe that gold is in Fort Knox and other depositories uh in the United States. um as to but observation can be some of the most leading information uh that there is. Whether you're, you know, a witness to a murder uh or you're trying to recall what happened at a party last Saturday night, observation can be very misleading in all context. So just going to see gold in a particular place in a particular amount does not give me any more confidence in the dollar today than I had before Rand went to uh see that depository. You know how much gold is there? What's the purity of the gold? um how much has it been encumbered, leased out um or otherwise reallocated uh for other purposes? I mean the private sector uh commits crimes in in over representing its assets. Certainly the government would do that. And would they really ever use uh that gold in any tangible way? Would they use gold to support would they sell off gold to support the US dollar? I I don't think so. I think that if they tried to sell off uh gold to support the US dollar or to finance expenditures or anything like that, it's really a drop in the bucket to compared to the size of our problems. And again, perception of the government, you know, disclosing bad information or selling off its gold or even revaluating it, it's not going to cause a lot of big increases in people's confidence. So, um I think it that's a little bit of a misdirection. Um, you know, a normal uh business uh would have no problem uh disclosing uh information about itself, its inventories, its assets, uh things of that nature. But government wants to keep this particular thing relatively secret. you know, why hasn't there been an audit? Um, you know, an official legitimate outside audit of something that is considered by a lot of Americans as part of the strength of uh America and the American economy. You know, why not do that? And I think that, you know, the fact that they're not willing to answer those kind of questions and actually answer them, uh, is indicative of the type of people that we're dealing with today. The people who are not really representatives of the people, but people who feel that they are more or less are rulers uh, or the representatives of the ultimate rulers um, of the people, not their representatives. So, I think it's symbolic of how bad the political landscape is in the United States and why twothirds of Americans oppose their government. They're just not they they don't just have negative views of their Congress, their Senate, and their president and so forth. Uh they have um opposed what they're doing across the board. Hands up or hands down. The American people, twothirds of them say hands down. Yeah. Yeah, for sure. Yeah, I appreciate your thoughts on that, you know, and I mean, if if he went like I'm glad somebody went and at least took a peek at it, but you know, I highly doubt he counted the 277 million, whatever, you know, um that he stated was in there, you know, but I mean, at least >> No, he he Yeah, he got the figures wrong. He got the he didn't he didn't know what the number was and uh he didn't really correctly specify if he was talking about ounces or troy ounces or 90% purity or pure gold. um you know that's that's the flims flam and I'm you know a little bit surprised >> um that he didn't really take a more serious um stance on all of that and that unless he was sending us some kind of cryptic message um I think he should have taken it a lot more seriously. >> Yeah. Yeah. For sure. Yeah. Yeah, cuz a lot a lot of gold bugs were were pretty pretty upset and so I had to ask you about that. Uh you mentioned the the distrust for the the government and about twothirds of Americans disapprove. I'm curious about like your thoughts on the younger generations. Um it seems like they're seeing they're seeing the swamp the swamp play out um on both sides, you know, and uh we saw that under under Joe Biden. We're seeing it under Donald Trump and such. And so some people are calling for a third party and and we know that third parties are I mean we we get like 10 of them right on the ballot. And so I'm just like, man, like what what is the solution to this to this uh this issue? And I'm kind of wondering about how the younger generation um is thinking about that. And so I just want to hear your thoughts on like are you hearing some of this from either like your students like their perspective on this or um what do you think, you know, the younger generation is going to going to do? Like are they going to want more socialism? Like what what are you thinking? What are your thoughts? >> Yeah. Well, you know, I'm I'm very concerned about the younger generation. I love the younger generation. I get to work with a lot of young people. We just had a great summer with undergraduate students and graduate students and uh and some of our members and donors as well. Um so we had a great summer here and it's very uplifting uh to see the interest of these young people in the ideas of liberty, freedom and free market economics. Uh but you know there's a a broad concern and you know as as much as we've gained ground percentage-wise with young people uh the other side the dark side has gained even more in terms of young people wanting to support socialism um you know as a as an economic system. But I think, Darl, I think the interesting thing is that libertarians, independents, and these um national socialist um people who want nationalized industries, they want national health insurance. Uh they want government completely taking over uh you know, the paying for college and the paying for health insurance. I think we all share um at a fundamental level a similar concern. You know, libertarians are concerned about the size of government, how much it spends, how it's invading our privacy and our lives and our investments. Um and we're worried about the future. We're worried about the national debt. We're worried about the implications for social security. uh and the list goes on and on. And younger people uh have a similar are leaning towards socialism. You know, they're seeing uh that higher education is broken. It's way way expensive. It's gotten the expense has gotten out of control. They're looking at health care where it's broken. It's not doing it's not making us healthier. It's just getting more and more expensive so that people can afford health insurance. So they want a government solution. Libertarians want uh sort of the anti-government solution. They want a free market solution. Uh so we're all seeing the same thing. And of course independents uh thinking independently they also realize that government is out of balance out of sync with uh the middle class. Uh and so it's really across the board. We're all seeing the same problem of too much government, too much power in government, too much control of our daily lives. It's just that these young people who don't who aren't exposed to real economics, they're, you know, they're exposed to more like socialist ideology and socialist economics growing up in public schools, in colleges. That's what they're seeing, you know. And then you got Bernie Sanders in AOC. Uh and then all these Winnie Mamami in uh in uh New York City, you know, and it it's it's spreading because these young people want to draw attention to their concerns. And I see it. I feel it. I know it's true. Uh they just h are hitting on the wrong solution. Uh but I can feel for them. They see the cards that are stacked against them. things that my generation did. We put social security out of balance. We put the size of government um out of balance. We allowed health care to become controlled by government and and most people have their uh health expenditures paid by government. So it's controlled by government and it's the costs have run a muck and it's really geared not to health care but managing people getting sicker and sicker with more and more drugs and prescriptions and so on and so forth but health less healthy people. So, you know, it's it the picture is pretty clear to everybody, but we're not all in sync uh in terms of what is the cause and what is the solution. >> So, um you mentioned your generation. So, I was reading uh David Stockman's The Triumph of Politics, and he talks about when the Kemp Roth tax cuts were implemented um in the in the 80s, how uh the government cut taxes, but they didn't cut spending, and then pretty much the the politicians were um they weren't willing to cut their constituents uh benefits and such. And so, um, do you think that's a just going to be a indefinite thing where the politicians are looking to serve their constituents, um, and they're not willing to to make any sacrifices or cut spending because otherwise they wouldn't have a job? Is that correct? >> Yeah, that is correct. But it's not just constituents. Uh, they're not so much concerned about constituents. They need their votes. And so, they don't want to cut Social Security. They want to increase social security. They don't want to bring cost of health care under control. They want to add more money everywhere possible essentially. Um but you know I I came of voting age when uh David Stockman became a congressman. I watched him as director of uh of the budget. Um I know David Stockman now. He's a great guy. Very very smart. I mean, he knows everything about every everything, I think. Uh, but when he was there, you know, uh, they were going to cut taxes, which is great. Um, you know, IAS and a lot of positive things, but he presented the cabinet with a balanced budget. and they just laughed him out of the room and said, "You're going to have to come back with something serious because not only uh are we not going to cut all these agencies and eliminate all this waste, fraud, and abuse and a lot of programs too, which is really necessary. You have to eliminate programs entirely, things that actually hit uh voters. uh but they wanted to increase military spending and they wanted to uh launch new programs and spend more money in a lot of other areas and that's what you know that's why uh David um you know essentially had to quit because he entered the Reagan administration with the understanding that they actually wanted uh to revolutionary in a revolutionary way bring about a conservative result which is balancing the budget at a much lower level and start trying to figure out what is the most important things for government to do. Not that it should do everything for all people at all times and just continually increase spending. And so I know he was very disappointed. That's why he wrote the book and explained what happened um and why he continues to work um on his own and with the Misesus Institute and on Twitter and so forth uh to try to bring attention to these issues because he knows I know you know that if we don't do something about it uh the standard of living for the working class is going to continue to deteriorate. Mhm. What are the most common misconceptions of capitalism that that you hear? >> Well, uh there's a lot of them. Uh one is that it exploits uh workers. Uh you know, it's based on the labor theory of value that goes back into antiquity. uh Adam Smith had a labor theory of value rather than a subjective theory of consumer valuations. Um and so it's really off on the wrong foot. Uh but when they see production, they see that labor only gets part of the return on sales of production and that somehow these entrepreneurs and these capitalists exploit labor by digging out money out of the process. Well, in reality, we know, everybody knows that entrepreneurs are a vital force in the economy. That you have to have bosses, that you have to have managers, that you have to have innovators, you have to have leaders or nothing is going to be successful. Uh, and successful entrepreneurs working with capitalists who finance uh, business ventures out there in the economy. uh and they invest more in the firm uh makes labor more productive and results in higher wages. So uh communists and socialists think that workers are being exploited by entrepreneurs and capitalists when in fact it's the very opposite. It's entrepreneurs and capitalists that are making workers more productive and leading to higher wages. And of course, you know, the the era of capitalism was when the standard of living took off and and why the average person now is much wealthier and much better off, lives longer uh and under better circumstances than the kings and queens of a thousand years ago. Uh you know the standard um life uh before capitalism was nasty, brutish and short where people were all living at subsistence and where the government the kings and queens were exploiting the population so that they could elevate their own standard of living. So, you know, prior to capitalism, the political class exploited the working class with taxes and so forth just the way they do today. But capitalism with entrepreneurs and capitalists who finance things actually made us so productive that and made labor uh so highly demanded uh with new technology and higher productivity that wage rates have gone up enormously under capitalism. And we see that like in China and India in a very short period of time capitalists and entrepreneurs were unleashed uh capitalists came in and finance a massive expansion of factories and productivity and the wage rates in China just skyrocketed from subsistence to middle class and beyond. So reality just tells a completely different story than the story that the socialist and the communist would like to portray. Yeah. I I have a couple of uh friends, you know, colleagues that I've worked with who align more socialists and I got friends on all sides of the spectrum, you know, uh from uh Republican, Democrat, liberal, conservative, capitalist, socialist, like you know, I I don't I don't discriminate. So, I I got friends all over the place and I like to have these debates and and these uh conversations in in a productive way that, you know, uh we I can hear their concerns and they can hear my concerns. And um I was talking to a colleague of mine about the tax the rich um philosophy and such and and they were like, "Yeah, I think the rich should be taxed." And and then I said, "Okay, well, if we tax them at 100%. uh all the billionaires would only fund government spending for a year and we'll still have the problem of debt deficits and government and then then you got the waste, fraud and abuse, you know, you got to worry about and uh and that's assuming that the government is going to do what's ethical and give that to the people like if they if that's what they say they're going to do. And so, you know, it's all these different dynamics. And I noticed that whenever I'm engaging with someone who's aligned on more of the socialist uh side of things, they don't look at the economics or the or the um uh like they're not looking at the fiscal situation. They're not looking at the debt situation or anything around the the numbers. they they just kind of lean more on their ideas as being like the right thing for people, but they don't look at the reality of of uh the economic side. Is that something that you experience too when you're engaging with people? >> Oh, yes. I have friends all across the political spectrum and I tend not to debate with them for fear that I would lose a lot of those friends. I prefer to save my debate energy uh for online and of course you know uh doing interviews and talks and things like that. Um and I answer questions when people ask me questions. Um but we do not have a taxation problem in the United States. Tax revenues are at an all-time high. They've been rising very rapidly over many many years. uh there's only slight sagging in the trend lines of tax revenues during recessions and things of that nature. So we don't have a tax problem. We have a spending problem and government spending along with the waste, fraud, and abuse that comes along with it uh means that that spending has grown much much faster than the tax revenues coming in. And you're right, Darl. I mean, you can't uh you could tax everything that the the wealthy had and you wouldn't really pay for much at all and you would ruin the economy if if if the if the if the um if the reward for serving customers the better than anybody in the economy is having all of your the resulting wealth taken away, you're really going to destroy the economy. I mean, history has seen that um already. If if the logic doesn't um ring ring true with you, certainly history would. And um so uh and you know in just in terms of taxes um uh people in the bottom 50% of income earners in the United States pay zero income taxes or less. They pay zero income taxes or less. Now they pay, you know, social security taxes, sales taxes, um, state income taxes, you know, they they do pay taxes. But in terms of the income, the progressive income tax, the bottom 50% pay nothing or less. In other words, they get money back. Um, whereas the top 10% pay more than 50% of all of the income tax. So, it's not like we're not getting a lot of tax revenues over people with high incomes. You know, uh like say over $250,000 a year, uh we're getting an enormous amount of income taxes out of all of those people. In fact, anybody over like $120,000 is paying a very large sum um for income taxes. uh they're paying capital gains taxes. Uh they're paying, you know, higher taxes um uh into the social security system and um very often paying higher health insurance premiums. So that really is not our problem. The the facts uh support that contention. uh the wealthy, the highincome earners simply pay most of the income taxes to the federal government and while everybody is paying taxes um to one extent or another you can't avoid it. I mean they tax everything right? Uh so nobody can avoid paying taxes but it's a misnomer. It's incorrect to say that the wealthy are somehow not paying their fair share. Mhm. >> Yeah. Yeah, for sure. What do you think happens with social security? Uh, so people, me, I'm 38. Um, I mean, we got younger people paying into the system and such, and I know that the U trust is supposed to run out in the next uh what, six years, maybe maybe seven years. Uh, legislation around it hasn't been touched since the 80s, I believe. and um and we don't have enough people paying into it. Um so do you think this is something that you know the age is going to be increased to infinity before before you can receive those benefits or um or are younger younger people that haven't reached that retirement age are just going to lose out or is it going to be inflated away? Curious your thoughts on that. Well, you know, the red ink is already starting to run on the social security programs which include Medicaid, Medicare, disability, and so on. The red ink is already running. Um, the false assets of Social Security are just IUS from the federal government. So, there's no money there. There's never been any money there. People think of it as a retirement fund, but that's a complete misnomer. This is a slush fund for politicians to spend in the here and now. And I don't expect any, you know, the current group of in Congress to do anything meaningful to reform uh or transform that system in some into something that's fiscally responsible but takes care of at least the most vulnerable people stuck in the system. But any of the anticipated reforms like, you know, increasing the tax rates or the amount of income that can be taxed into the system, uh, or extending the retirement ages, you know, that's not going to that, you know, the young people can see right through that that that's not going to help them one single bit. That's like, you know, uh, but on the other hand, everybody loves IRAs. Everybody loves the Roth IRA, they love their individual retirement accounts, >> um, you know, and all of that. So I think that any type of reform has to make a better access for people to uh save money in a tax-free fashion that is beyond the reach of government. The one thing that I am uh very hot on is the idea that people should be able to save money in a bank or more importantly save uh gold in a gold account at a bank uh tax-free so that there's no uh income tax on any of that and that there's no capital gains tax on the gold that's in these accounts. uh and that they can be used freely. Uh not only would that help the younger generation and people save for a legitimate t um uh retirement program like the IRA and the Roths and so on and so forth. But if people could hold gold in a bank account, I which I do. I hold gold and silver in a bank account. Um, but if I sell it, I have to pay a capital gains tax. So, if we can take that capital gains tax off of there, if we could take the income tax off of interest income earned at a bank or even dividends earned on stocks, you would uh put pressure on the Fed not to inflate. You put pressure on the Treasury to maintain the value of the dollar. Um, and you you'd encourage the financial sector to funnel individuals into more conservative investments that earn dividends um, and that sort of thing rather than uh, these high-flying uh, tech stocks that may never earn a dividend uh, you know, for the next 20 years and may not be even in existence in 20 years. So it would do a lot of great things for a lot of people as well is make the the economy more stable. >> Yeah. Yeah. I totally agree. Uh I mean and that's I never heard that idea before. I mean, if you know, they can just incentivize people to save in other ways. Uh whether that be through increasing uh Roth IRA contributions more significantly or or you know, like you mentioned, uh being able to hold gold in account in an account and uh remove capital gains from it and such. I mean, those are some creative ideas. U you know I think I think uh I think a big problem >> with the middle class of America the working class is not only that they fa facing higher prices but they have no savings they have no assets to be leveraged um and you know and they have no savings and I think we need to change the system so that not only can people afford what they're buying but also they have legitimate avenues to save money for the future. And if we get the middle class and the lower classes being able to save for their future, they'll be more future oriented and America will be not just uh wealthier and uh more productive um and uh we'll have lower interest rates and the economy will be more stable uh over time. So we we need to push back on what the government is forcing us into and push forward with an agenda of sound money uh and limited government. >> So uh as as we wrap up uh Dr. Mark um I'm kind of wondering if you think that um there's still hope for this system. I mean some people you know uh want to remain optimist you know and and and see a way forward. Others believe that um there's there's no point in it. Um, and I'm kind of wondering your thoughts and how you um, I mean, you've been doing this work for a long time and you know, it seems like we keep drifting further and further away from capitalists and free market uh, capitalism and uh, libertarian values and freedom and property. It seems like it just it's it's like a constant attack on like what we value. And so I'm kind of wondering u your thoughts on that. Well, you would think the way I have to talk negative about so many things in the world that I wouldn't be optimistic, but I am a raging optimist because, you know, for many years now working at the Misesus Institute, I've seen just a a intense interest uh by young people in college and high school and going to graduate school in free market economics and the Austrian school of economics. um you know which is a little bit old-fashioned, traditional and conservative, but it's radical at the same time in terms of how we view the economy um in its best state and uh so I see these young people and their interests and I see an expansion uh in percentage terms of these type of young people in the economy. So yes, socialism has is really hot in the last couple years uh because of that, but the there's also been a lot of growth uh in the direction of Austrian free market economics as well. And there's tremendous dis dissatisfaction with the status quo politically and with the government. Um you know, twothirds of Americans are against the government, what it's doing. um you know and they've seen the government um just trot on their rights and uh ignore uh their duties to represent the American population. They've seen COVID and the the vaccines and the arrogance of Fouchy. uh they've seen, you know, what's going on in the current administration, what they did to Representative Massie, you know, and they're just fed up with it and they see it and they realize, hey, there's something wrong there. So, I am a raging optimist and I feel like it's really just a matter of time before we get to sound money. Um I think it's it's uh very very important that we succeed in the area of ideas and ideology of those ideas to reform government um and not have a revolution for example because that lets the radicals in the door but the type of ideological revolution that has occurred in far-flung places like China and India and Russia and Eastern Europe and pockets of South America, pockets in Africa that is becoming a high growth high entrepreneurial area. So the most of the world is moving in the right direction and a sizable uh part of the young leadership class uh in the United States that knows these ideas is also uh making its presence felt. So that's why I am an optimist. >> That's good. That's good. Well, you you've given me hope today, Dr. Mark. Uh where can people uh connect, find more information, follow you, uh give them all that information? >> Yeah, I have a short uh podcast on Saturday mornings called minor issues, m you can find that at misesus.org. And if you go to our homepage at misuses.org, org. At the top of the homepage, there's going to be a link where you can request a free copy uh of this book by Murray Rothbard uh which is the case for 100% gold dollar and uh Rothbard worked on the original wrote ghost wrote the original um minority report for the gold commission that Ronald Reagan commissioned uh when David Stockman was there, you know, you had people like Stockman and Ron Paul and Lou Rockwell and um Murray Rothbart uh who were this was a a a great class of people, but they were teeny compared to what we have today. Uh, but you can learn a lot from Rothbart's pamphlet and I encourage everybody to come to the web page, click the link and sign up for a free copy or multiple copies for that matter. >> Yeah. Yeah. Okay. Well, appreciate you for saying that. You all be sure to go check out mises.org. Also love to have you subscribe to the channel if you haven't subscribed yet. We'd love to have your support and also click the link in the description to the commodity university and check us out. All right, Dr. Mark, we we'll talk soon. Very good, Darl. Great to be on. >> You're watching Capital Cause and my name is Danny. It is August 10th, 2026 and my guest today is Dr. Mark Thornton and uh he is a first time guest on the show. So, Mark, thank you so much for coming on. >> Danny, it's great to be on your show. I I watch it all the time. >> Oh, awesome. Yeah, I mean, I watch you and all the other podcasts, too, and I just thought to myself, you know what? It's it's high time I get Mark on here. And for those who don't know, I mean Mark, you are an American economist, a senior fellow at the Lanis Institute in Alabama. You have your PhD in economics from Auburn. So you specialize in Austrian economics and uh I mean you're one of the best people to talk about what's going on going on today in the markets, in the economy, in gold, in the fiat currencies, etc. So we appreciate your time. >> You're very welcome. It's great to be here. So Mark, let's go ahead and uh talk about this recent rally in gold uh the last week or so. Is uh is this is this a real breakout in gold? And if it is, what is this telling? What is a signal here signal here from a macro standpoint? Usually gold rallies before a major infl in inflation move. Uh you started seeing it in 2020 when gold started to rally a year later. You had your big inflation prints in 2021 and 2022. You also had gold rallying from 202 uh 4 up until I mean recently up until the end of January. And that's when you started seeing money supply kick back up again after troughing a bit um in 2023. So what's your what's your view on the current gold market today? Are we set for another leg up in gold? And what does it portend to the macro? >> Yeah. Well, the macro thesis has been and continues to be still in play here. I mean, you have the government spending money, you have borrowing money, and uh seemingly without limits. And of course, that just creates an enormous incentive for the Fed to increase the money supply, which is inflation. And gold is essentially the market form of money, even though it's been displaced in hand-tohand currency uh by central banks and paper money. Uh but it's still out there on the sidelines moving inversely to the supply of money. And because there's no end in sight of that government spending, government debt, and and increases in the supply of money from the Federal Reserve, there's no reason to suspect that gold is going to go into some sort of massive downturn um in a perpetual sense. the the latest move throughout the summer uh really should be viewed as a correction in the market that was of course induced by the nomination of Kevin Walsh. If you go back and look at your schedule, you'll see that both things happened on the same day. gold started to recover and then we get this mysterious war breaking out against Iran and then a further collapse and then we saw throughout the rest of the summer a ratcheting down uh with the declining prospects for the US in that war. Um and and so you know I think the the conditions are reemerging for another upswing uh in gold precious metal prices commodity prices in general. But of course because gold is essentially the market form of money. Uh that's what's going to move first. uh you know with the wartime conditions we saw people go to their money and use their money in emergency situations throughout the Middle East uh Turkey uh in Asia and so forth and so that joined in on the decline of gold. uh but now you know conditions appear to be changing um that's going to be a difficult situation over there but yes I think that the recent uh move up is an indication of resumption of the longer term trend in gold >> do you anticipate oil and gold to keep the relationship that they've created the last six or seven months which is completely counter to what it's And historically, typically gold and oil move in tandem over the last 7 months has been an exception to the rule where they've been inversely correlated, meaning when one goes up, the other goes down and vice versa. Is this something that you anticipate maintaining itself moving forward and and uh yeah? >> No, I I think that the wartime conditions is exactly what caused that inverse relationship. Uh and it goes as follows. Of course, you know, people in Canada, let's say, they had no need to sell their gold uh with the war in Iran. Uh so they didn't, but of course a lot of people did. And so as tensions increased, as the wartime conditions worsened over there, uh that's what really set off that inverse relationship both as with the sellers of gold in the region and then of course higher energy prices uh for the rest of the world means higher consumer price indexes which puts the pressure on central banks not to cut interest rates. uh but possibly to increase them and we saw several central banks increase their interest rates and that's what of course what everybody in the United States is worried about this week >> um is you know how is CPI going to come out is energy prices subsided enough in their calculations to drive down CPI and therefore clear the decks for interest rate cuts so that's all policy that's not really the economy per se. Uh it's it's all policy driven driven by the speculators and right now we have a huge sector of speculators in stocks, gold, oil and so forth. Um probably the biggest we've ever seen relative to the number of investors uh in these markets. And so we've seen these tremendous swings really um as a result. Going forward in the longer run of course I expect the traditional uh relationship to reemerge. I expect uh higher gold prices, higher silver prices and higher oil prices um in the in the world economy um as we get away from this event in the Middle East and we return more to uh more normal uh situation. Um and I so I do expect both uh higher oil and higher uh energy prices as really across the complex but particularly in crude oil and particularly you know in the products that have been most adversely affected like diesel fuel. >> So you mentioned the CPI coming out on Wednesday. Uh from what I'm reading here, uh the expectations are laying it at 3.4%. So cooling slightly from the 3.5% in June here. If we do see I guess a cooling off in inflation, even if it is one decimal point, you know, onetenth of a point percentage point, is that really enough to make any big decisions off of if you're the Fed? No, I I I I I would say no. I mean, I think that when we look around at global marketplaces, um, you know, if I was the in charge of the central bank, for example, I would be very concerned about long-term interest rates in the United States. And this is an unusual situation. Typically, you know, on average, if the Fed cuts the shortterm rate, which is the one that we're contemplating here, uh that the all the interest rates along the yield curve, including the 30-year government bond and therefore mortgages would decline. right now with the inflationary situation and the situation in bond markets at the longer end. Uh cutting interest rates now, yes, you know, it might be um seen as a positive thing in stock markets, but the bond market might look at it adversely and put upward pressure on on those rates. Now I think you know the uh typical person will tell you that the Fed has a dual mandate of CPI and the unemployment rate but the real mandates I mean the things that when push comes to shove their real mandates uh the reason for their existence is on the one hand to protect um government financing its debt. That's the government partner and the other mandate is essentially the banks and stock markets and uh the banks are the other partner uh of the Federal Reserve and and so they don't want to do anything that's going to adversely affect uh the bond market uh or at least they shouldn't. uh they would have to wait I think until the stock market turns down. Uh whenever there's an emergency uh in the stock market, the Fed, you know, every all these other considerations go out the window and they usually steam forward with multiple cuts in interest rates as the stock market is going down or as the stock market is even collapsing. uh sometimes they lead that process uh but generally speaking, historically speaking, uh they'll go into these emergency cuts uh and you'll see the stock market falling right along with it. >> So Mark, we have a 10-year yield right now of 4.69%. I mean, that is above the 4.5% level that we've kind of been hitting our head on for the better part of four plus years now. is the fact that they're unable to the fact that the tenure has become stubborn now and is sitting well above 4.5 to a to a degree you know about 02 percentage points um does that signal anything is are we starting to see I mean we have seen divergence from the short end of the the yield curve with Powell cutting rates in 2024 and the long end just not responding I mean what if they run the risk of cutting rates or doing anything with rates in the long end just completely fading it. >> Yeah. Ignoring that or or even having a bad reaction to the cut in the shortterm rates. And so while I'm very much encouraged and excited and in it's confirmation that gold and silver are breaking out of those uh doldrums that they've been in. Um, I see the fact that we've already broken out on the 10-year and the 30-year as the much more important technical events. Uh, because, you know, the 40-year period in which bond prices rose and long-term interest rates fell is over now. I mean, it's been over and it's over the last few years, they've contained it uh at the 30-year level, at the 5% level, and the 10-year government bond at 4.5%. They've been able to keep it contained under those levels. And the fact that it's broken out above those levels um is a confirmation that we're we're definitely in this period of rising um interest rates and falling government uh falling bond prices in general, but government bond prices um in particular. And uh that in contrast to a lot of market thinking where you think lower rates are necessary for like keeping gold prices high. Uh historically speaking, we've seen plenty of trends where interest rates rising uh coincide with gold prices rising and with oil prices rising. And you know, higher uh interest rates do make it more difficult for miners and drillers to get the material um that they sell to market. Uh but that just means supply is constrained. And so if you if you constrain the supply side of a market while the you you're seeing an increase in the demand uh because of government printing um you know just pushing up nominal values. That's when you you tend to see uh quick uh and extended periods of higher prices in things like gold and oil and all commodities. >> So is it's a chicken or an egg thing? What drives what higher? Is that the interest rates that are driving the oil prices higher? Because much like you said, the financing cost of getting the oil outcre increase so it provides a a headwind on supply and thereby increases the prices or is it um is it the other way around? Do the higher commodity prices force uh higher interest rates to compete with it? >> Yeah. >> Or maybe a little bit of both. >> I mean, at the foundation, it's government printing money. um is is the fundamental problem uh and that's causing the problems in the interest rate markets, the bond markets. So the fundamental foundational problem here is the government's ability to print money and therefore they don't seem at all concerned about controlling their spending or controlling their debt. They're drunken sailors run a muck. And you know, I don't want mean that as uh an insult to drunken sailors because in comparison, they're relatively not a problem. Uh but Congress and the president and our government, that is the problem. And they get bailed out on a regular basis by the Fed. And so that's rest at the at the at the foundation of all of our problems really. And if you go back to the gold standard or even if you go back to the Brentton Wood system, you know, you'll see that the price of oil was very stable and very low. Uh and interest rates were also low and stable. It's only after we went off of the gold standard did we get these wild girrations in interest rates, uh wild girrations in trade deficits. um wild girrations in terms of the price of gold, the price of oil, the price of real estate. Um you know when you rest your society and your economy on fake pieces of paper to as a basis of your exchange, your standard of uh value, your uh standard for deferred payments, um you know, your store of wealth. um you you set society off on a crash course of uh confusion and chaos. And so, you know, if you ever get um uh you know, you're you're trying to figure out something that's going on uh in financial markets or commodity markets uh or or capital markets. Um, ultimately the problem is going to rest on the government's money, the ability to print up money at zero cost and uh and all of the uncertainty um concerning all that. That's why everybody's attention right now is focused in on a statistic that the government puts out uh because it's going to affect the policy of the central bank. We also have to think of the government really as you know they are different groups and players and institutions but they're all basically you know functioning as a government overall and so they don't necessarily work in lock step but they're all basically going after uh promoting the interest of the government itself even if you know other interests are being served um in societ society. That's uh what you really have to keep an eye on is the fact that it's the government. It's doing it in its own interest and they have the ability to print up money at zero cost. The >> 10-year yields historic price movements. This this is a chart that goes back to the 1900s in 1913. And you'll notice that when you were in an increasing interest rate environment, if I overlay a chart of gold, uh, sorry, oil, you have a pretty steady move in oil. I mean, you do have these step step function changes in the price of oil here in red and then it stabilizes and it goes back up. And then here in the 1980s is when things really started to become more volatile with oil became less of a predictable commodity more and much more volatility involved. And now if you still see some tiein with the 10-year yield. Um and then when you look at something like silver that has some pretty interesting correlation too. So if you look at silver here, you'll notice that if you look at it, I mean its relationship in, you know, prior to 1980 was pretty pretty robust between the 10-year yield and silver and red. Um, ever since the 10-year yield started coming down, silver went sideways, so pretty much going nowhere for um, four decades almost. And now you have a breakout in the 10-year yield. Kind of begs the question, if we start seeing an increasing interest rate environment, does that also imply uh some tailwinds for the likes of silver and gold and oil as well? Like is that what we're anticipating? >> Well, yes. I mean once you get away from a composite of commodities and you look at individual commodities then you have to start looking at individual features of it like with oil. You know you had the formation of OPEC which was a cartel that restricted supply and had a policy rather than a market. um you know and so and then there's um you know developments on the demand side as well with alternative energies and things like that with silver uh is very interesting. And I've reported on this on my own podcast. Uh you know that long period of underperformance by silver also coincided with the fact that you know the world used to use silver coins as its money and then all of a sudden they were out of circulation and for years thereafters and in fact it's continuing to this day. all the money that people took out of circulation and hid in their mattress, you know, eventually eventually those people died and the the the coins were sold off into the market. So there was this dribbling out of supply and also of course with photo photography no longer using silver uh in photographic paper to make photographs uh that's now completely gone. And so the demand for silver uh had a huge setback and the supply of silver had a huge overhang because almost every country in the world used silver coins. They were all taken out of circulation by individual businesses, business people, individuals, you know, in coffee jars around the world. And those have dribbled out back into have been recycled back into circulation. And it's only been over the last few years um couple decades actually where we've seen blip ups um in silver prices. And now not only do we have um you know inflation to worry about but also silver has developed because of all those years of uh low prices. people have come up with so many applications to use silver in computers, AI, cell phones, um electronics of all sorts, um uh solar power, um you know, electric cars. And so we have a new wave of demand. uh at the same time where supply has been underinvested for many many years because of those low prices. And so it it it should not be surprising that we've spiked to all-time nominal high prices already. You know, went above that $50 level on up to 120, still over 50. And it should not also not surprise us if the price of silver sets a new record high in inflation adjusted terms. Of course, that would put the the uh price of silver um at above the previous $120 an ounce by a pretty good deal. So don't be surprised if that happens because there's fundamental market changes that we've witnessed in the past that suggests this going forward into the future. uh the lack of mine development, uh the lack of supply investment, um and then all of the increases in the demand for silver in terms of um new electronic uses and all of the old uses of silver in coins and in silverware and tea sets and all the rest. All that's gone. uh and all of that's moved into the recycling bin uh of the world economy. >> It's interesting you mention the inflation adjusted price for silver. Let's look at silver relative to the CPI. If you inflation adjust it, this is where we're at today. Even at 60 some odd dollar, $64 right now. If you inflation adjusted back to the all-time high, you're looking at a I mean, you would need a 3x move in the current price of silver today to get it back up to par at that spike. Now, that spike was an anomaly. It's not the norm. It's not the average. If you can if you kind of look at this chart, you know, you could probably draw an average line as in terms of where we are right now. This is the logarithmic scale and so forth. But I would also contend that, you know, we can't really trust this denominator all too much. There's all sorts of schemes and methodologies to kind of dampen down the CPI and thereby dampen down the denominator in this ratio. And so, you know, what is how do you how how would you best accurately measure the the the inflation adjusted price of silver? If not, if if you if you couldn't use the CPI, though, I mean, where would that put silver? >> Well, I would reiterate that I would not be surprised to see a new all-time high in the inflation adjusted price of silver. Um and I would you know Ludwig van Mises is famous for many many things but one of the things that he pointed out is that the demand to hold money is not stable. We think of it as stable. it is stable in the short run. But what he showed looking at historic inflations is that when the inflation gets going, there's a long period where people will be lulled into the fact that um money is money and that it has a certain purchasing power. and they will hold more money as the government prints more money because they feel like they're getting wealthier. And therefore, the government's inflation does not turn into price inflation. And then there's a period where people get suspicious. Um, you know, when inflation goes above 2% for an extended period of time and people know they're losing purchasing power, then people are going to reduce their demand to hold money. They're going to hold less money. They're going to hold fewer um assets that are denominated in money like bonds and life insurance. and they're going to go to more real resources. And then there's a period where people finally wake up and say, "Hey, they're not going to stop this." And they're just increasing the money printing. And then then the demand for money can fall precipitously. Um and that causes a cascading effect on devaluing the paper currency and therefore everything across the board is going to rise in price. Uh because the demand for the dollar and the purchasing power of the dollar are declining. And I think this is something we we need to be very weary of right now because it was long thought that the petro dollar system whereby the Middle Eastern c countries would take their dollars from selling oil and they would invest it in US government bonds, US uh real estate, US stocks and so forth. And now that whole system seems to be breaking down where they don't necessarily have to sell their oil for dollars and they're going to be more reluctant to reinvest all of their extra dollars into government, US government bonds and real estate and stocks. Um and so this is really pulling out one of the supportive legs of the demand for dollars and we're witnessing it right here right this summer and we don't know how that's going to play out but I would suspect well we know it's going to be negative for the dollar over the long haul as these people make adjustments to the new environment which might not include the US provid iding its side of the bargain which was protecting the Persian Gulf countries and states um you know providing them with a military umbrella for these shikdoms and kings and so forth. Um and and so you know we don't know how that's going to play out. Uh, President Trump has obviously played a very dangerous game and has not uh come out on top on all this and we don't know what the ramifications are. I suspect that one of the reasons we don't see a resolution there and nobody really wants to come to a resolution is because what it might spell out for us in terms of uh the petro dollar and the demand for money uh higher US prices and and so forth. It's it's a re it's a great unknown but it's clearly an unknown on the negative side. This is something that will not help uh the US government. It will not help the US dollar. It will not help uh American citizens in and their their economy. How does Iran tolling the straight of Hormuse endanger the petro dollar system or does it at all? >> Well, again, it a lot of it depends on how it it all plays out. Uh but as far as I can tell and a lot of the military experts um outside of the US government uh believe that this has been a defeat that there's no way uh that the US can have its way and that they're going to have to um concede points and raise the overall status of Iran in the Persian Gulf. We we just saw a couple days ago that uh Pakistan, Turkey, and Saudi Arabia signed a self-defense sort of package. Um and that was directly the result of them realizing all too well that uh Iran is in charge. uh they're going to be at a elevated st I don't know what the the final outcome is going to be but they're going to have an elevated status uh once all this clears and they really control when the clearing process begins and uh they're holding pretty firm on their uh negotiations um such as they are I mean it's mostly uh there's no real official formal negotiating process going on right now. These are just statements uh from the president and the white house. Uh but you know there's no actual formal negotiation. So there's a lot of wild cards here. But the experts feel that Iran holds all the cards in this uh unfortunate uh destructive uh game that they're playing over there. and um you know and it it's it's going to be disruptive to the previous system where the US had military bases everywhere you could put one down. Um in the Middle East all encircling Iran we had like 17 bases circling Iran. um and uh you know we've had sanctions on Iran for 30 years um and and so on and so forth and and yet they are in the driver's seat as far as uh the experts are concerned here. Now I take that to be a direct um negative uh outcome for uh the US dollar in the region because of what people have said and the importance that they've placed on the petro dollar system as propping up the uh US dollar uh in world markets. >> Interesting. Well, Mark, it's been a pleasure having you on. Anything else you'd like to touch on before we wrap up? >> Well, I think we've covered enough about the economy. Uh, it's going to be exciting times uh moving forward. Um, and you know, education, we believe that education about real economics is what really matters. And it keeps you focused and it also keeps you calm um about all of the chaos that governments are creating around the world and all the threats that they are imposing on uh families in the United States and indeed uh families and c and companies around the world with these oil uh chemical uh disruptions that they've caused. And the institute this month is offering a free book um by Murray Rothbard, the case for 100% gold reserve money and um you can go to our homepage uh we'll we'll send you the link but um you can go to our homepage at the top and request a copy or multiple copies if you want to have a reading group. Uh but yeah, I think really education, knowing the foundations is really important to clarifying your thoughts, keeping your anxiety in check and and finding your p your own personal path forward. >> Excellent. Yeah, we'll have the link to the website down below. So, you know, guys, check it out, get the free book. And Mark, thank you so much for coming on. I really enjoyed this.